Share-Based Payments

3 Months Ended

Nov. 23, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Payments

Note B – Share-Based Payments

AutoZone maintains several equity incentive plans, which provide equity-based compensation to non-employee directors and eligible employees for their service to AutoZone, its subsidiaries or affiliates. The Company recognizes compensation expense for share-based payments based on the fair value of the awards at the grant date. Share-based payments include stock option grants, restricted stock grants, restricted stock unit grants, stock appreciation rights, discounts on shares sold to employees under share purchase plans and other awards. Additionally, directors’ fees are paid in restricted stock units with value equivalent to the value of shares of common stock as of the grant date. The change in fair value of liability-based stock awards is also recognized in share-based compensation expense.

Stock Options

The Company made stock option grants of 188,324 shares during the twelve week period ended November 23, 2019 and granted options to purchase 171,293 shares during the comparable prior year period. The Company grants options to purchase common stock to certain of its employees under its plan at prices equal to the market value of the stock on the date of grant. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The weighted average fair value of the stock option awards granted during the twelve week periods ended November 23, 2019 and November 17, 2018, using the Black-Scholes-Merton multiple-option pricing valuation model, was $252.39 and $208.31 per share, respectively, using the following weighted average key assumptions:

	Twelve Weeks Ended
		November 23, 2019		November 17, 2018
Expected price volatility		22	%		21	%
Risk-free interest rate		1.4	%		3.1	%
Weighted average expected lives (in years)		5.5			5.6
Forfeiture rate		10	%		10	%
Dividend yield		0	%		0	%

During the twelve week period ended November 23, 2019, 18,407 stock options were exercised at a weighted average exercise price of $568.16. In the comparable prior year period, 129,559 stock options were exercised at a weighted average exercise price of $359.94.

Restricted Stock Units

The Company made restricted stock unit grants of 7,008 shares to eligible employees during the twelve week period ended November 23, 2019 and 10,474 in the comparable prior year period. The fair value of the restricted stock unit grants is the closing price of the Company’s common stock on the grant date and the grants vest ratably on an annual basis over a four-year service period. Restricted stock unit awards are payable in shares of common stock on the vesting date. Compensation expense for grants of employee restricted stock units is recognized on a straight-line basis over the four-year service period, less estimated forfeitures, which are consistent with stock option grant forfeiture assumptions.

The weighted average fair value per restricted stock unit granted during the twelve week period ended November 23, 2019, was $1,060.81. As of November 23, 2019, total unrecognized stock-based compensation expense related to nonvested restricted stock unit awards, net of estimated forfeitures, was approximately $11.7 million, before income taxes, which we expect to recognize over an estimated weighted average period of 3.3 years.

Transactions related to restricted stock units for the twelve weeks ended November 23, 2019 were as follows:

	Number     of Shares			Weighted-Average   Grant Date Fair Value
Nonvested at August 31, 2019		10,049		$	773.61
Granted		7,008			1,060.81
Vested		(2,456	)		772.80
Canceled or forfeited		(66	)		772.80
Nonvested at November 23, 2019		14,535		$	912.23

Total share-based compensation expense (a component of Operating, selling, general and administrative expenses) was $10.0 million for the twelve week period ended November 23, 2019, and $10.5 million for the comparable prior year period.

For the twelve week period ended November 23, 2019, 107,511 stock options were excluded from the diluted earnings per share computation because they would have been anti-dilutive. For the comparable prior year period, 427,407 anti-dilutive shares were excluded from the dilutive earnings per share computation.

See AutoZone’s Annual Report on Form 10-K for the year ended August 31, 2019, for a discussion regarding the methodology used in developing AutoZone’s assumptions to determine the fair value of the option awards and a description of AutoZone’s Amended and Restated 2011 Equity Incentive Award Plan, the 2011 Director Compensation Program and the 2014 Director Compensation Plan.